prepaids push profits

Card Revenues Soar

Looking for a way to drive fuel sales and up your overall profits? Recent research reveals that making transactions more convenient by offering and accepting a variety of prepaid cards is the way to go. Prepaid cards, also known as stored-value cards, clearly increase business, especially if the cards are reloadable.

A study done by Clickin Research for the NACS Coca-Cola Leadership Council asked more than 8,000 convenience store customers to reveal their payment preferences. Results clearly showed that c-stores can stand out by offering multiple ways to pay for purchases, especially for gas. In fact, having payment options appears to be more important to older customers choosing a place to buy fuel than the brand of fuel offered, and teen customers consider payment options to be the most important of the 40 attributes the study tracked.

Payment options help forge retailers’ relationships with their customers by making transactions more convenient. Whether closed loop merchant cards good only for gas and in-store purchases or branded, reloadable debit cards good anywhere the brand is displayed, prepaid cards are increasing consumer loyalty and boosting customer visits.

Prepaids Show Phenomenal Growth Rate
Last year, gift cards accounted for 4% of all in-store purchases. The percentageof c-store customers who used gift or prepaid cards at least a month jumpedfrom 12% in 2003 to 32% in 2005. Given that prepaid card sales at conveniencestores jumped a phenomenal 68.5% in 2005 and that the entire prepaid marketis worth more than $2.5 trillion—prepaid sales are becoming more attractiveevery day.

“Our prepaid card sales are up 35 to 40% this year,” said Carolyn Yapp, U.S.Cards & Payment Manager for Shell Oil Products. “Shell sold about $70 millionin 2003; $171 million in 2005. It’s definitely been double-digit growth everyyear.”

Shell, which offers a reloadable prepaid card not associated with VISA or MasterCard, is currently investigating the branded prepaid debit market. However, as Yapp points out, money being associated with VISA and MasterCard costs money, and most prepaid debit cards are affiliated with one or the other. “It’s something we’re looking at carefully and closely,” Yapp said. “We’ve got to make sure it’s economically feasible for everybody involved.”

With more than 13,000 fuel stations nationwide, Shell has the widest reach of any oil company in the country, and offers its wholesalers and retailers a 3% discount. The company also runs distribution programs through Walgreen’s and Safeway and makes a lot of B-to-B bulk sales to large corporations in the automotive, home improvement and travel industries for use in their promotional or incentive programs.

Because a card’s appearance makes a difference in retail merchandising, Yappnotes, Shell has given its cards a new look and developed new displays and signagefor its retailers for the 2006 holiday season. To further promote sales, thecompany also sent out a direct mail piece promoting its reloadable gift cardsto parents of teenagers who drive. “It gives parents peace of mind that thekids can get gas and other things they need without handing a fullblown creditcard,” Yapp observed. “And the cards can be reloaded by calling an 800 numberor online.”

Underserved Markets Offer Huge Potential
Prepaid debit cards are thebiggest driver of the continuing consumer migration to card’s, especially inthe underserved financial markets, which consists of two different groups:

People who are “unbanked,” meaning they have no transaction account or creditscore.

Those who are ” underbanked,” meaning that they have transaction accounts butno access to incremental credit. TransUnion reports that another 44.7 million,or more than 19% of all U.S. households, are underbanked. An analysis by BearingPoint says that the average underserved household receives $27,500 in wages,government transfers and dividends, interest and rent, for a total income of$1.1 trillion.

Unregistered Immigrants
The two groups above offer a tremendous channelof potential income, especially considering that about a third of all in-storepurchases are now made with debit cards. In addition to the money made by sellingthe cards initially and the fees stores can charge for reloading them, prepaiddebit cards bring the customer into the convenience store again and again, thusdriving customer loyalty and the opportunity to make more money from other retailsales. Rich Steckroth, director of business development for Sheetz, reportedthat prepaid debit cardholders shop at Sheetz stores more frequently and spendmore money per shopping stop than noncardholders.

Valero Finds Prepaid Partners
“The prepaid business is on fire—everybodyis seeing great results from the convenience they can offer consumers,” saidHal Adams, vice president of retail marketing for Valero Energy Corp. Valerohas been selling a reloadable prepaid MasterCard for about two years and isnow introducing a reloadable VISA card as well. “We receive a fee for offeringthe service and are pleased with the gross profit margin we can make in thecategory,” Adams said.

Three years ago, Valero began working with technology provider Incomm to locate companies in the prepaid business and sell them on Valero’s ability to market their products in its 1000 company-operated c-stores. Valero stores now carry about 25 brands of gift cards good at companies such as Blockbuster, JC Penney, Bass Pro Shop, American Express and America West, as well as the MasterCard/VISA lines. Adams said that Valero’s prepaid gift card sales have been growing at a rate of more than 30% for the past two years and that its proprietary cards account for about half its prepaid card sales. He observes that since Valero is a big brand, seeing big brands represented in Valero stores makes customers feel confident about giving cards as gifts.

Adams added that prepaid cards offer a great alternative to giving cash ora present that may not hit the mark. “I think it’s the ultimate convenience,and they’re a natural for c-stores, where customers are frequently in a hurry.”

Stock Up Now

It’s none too early for c-stores to start stocking up on prepaidcards for customers’ holiday giving. Rising fuel prices will encouragegiving fuel as a gift. The number of prepaid gasoline cards purchasedduring the 2005 holiday season was more than three times the number purchasedin 2004.

Last year some stations ran out of cards before Christmas, and resultsfrom a survey of people who had either purchased or received a gift cardduring the 2005 holiday season show that gift cards are popular with giversand receivers alike, which bodes well for lucrative prepaid sales latethis year.

The poll, conducted by the Marketing Workshop Inc. for Comdata from February23-27, 2006, reported that most recipients said they preferred receivinggift cards to other gifts, while 25% said they had specifically requestedcards instead of other presents.

Of the 518 respondents surveyed, those who purchased cards bought anaverage of 4.7 cards, and two-thirds did their shopping in early December.Eighty-six percent of purchasers chose a specific retailer for purchases,while 25% bought cards online.

More than 50% of purchasers said that they preferred cards with holidaydesigns and a third bought special packaging for the gift cards they gave.

Gift card recipients during the 2005 holiday season received cards withan average value of $42.32. Most recipients had redeemed all the giftcards they received by the end of February. More than one-half of giftcard recipients spent more than the value of the card when they go toredeem them,
and 75% made certain they used up their cards completely.

One-half of gift card receivers who had redeemed some portion of theircards did so in a single visit. Those who used their cards across multiplevisits averaged 3.5 visits. On average, cards were redeemed within 24days.


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